CORALVILLE — The deal that is bringing Von Maur to Coralville may be worth more than $16 million to the department store, with much of that coming from taxpayers, according to a public finance expert.
That’s significantly more than the $11 million figure that has been frequently used since last month’s announcement that a Von Maur store will anchor the city’s Iowa River Landing District. That includes more than $9.4 million in incentives from Coralville and $1.5 million for the land
Tom Markus, the city manager of Iowa City, also weighed in, saying Coralville’s actions amounted to “greed” and “desperation.” It is expected that Von Maur will close its store in Iowa City’s Sycamore Mall.
“That $9.4 million was a stunning amount,” he said. “And $16 million? It seems gross.”
The $16 million figure was provided by Peter Fisher, who studies tax and budget issues and is research director of the nonpartisan Iowa Policy Project. At The Gazette’s request, Fisher reviewed the purchase and sale agreement and other public documents related to the Von Maur deal.
The city has said it will give Von Maur nearly $9.5 million for construction costs for an 80,000-square-foot store in Iowa River Landing, a city-owned 180-acre site off Interstate 80 that is to include restaurants, stores, a medical facility and office space.
Coralville is to sell the land to Oliver McMillan, the California firm helping the city develop the site, for $1.5 million. Oliver McMillan then will sell it to Von Maur for $10.
Fisher arrived at $16.2 million by taking the $11 million for the store and land, adding the up to $650,000 the city must pay if Von Maur is penalized for breaking its lease at Sycamore Mall and for moving expenses, and by figuring a $4.5 million property tax rebate.
That $4.5 million is Fisher’s calculation of a provision in a separate agreement between the city and Von Maur that caps the amount of property taxes Von Maur pays at $150,000 a year, to increase no more than 2 percent each year. Coralville would have to pay anything more than that.
Using the current tax rate, Fisher calculated the annual taxes at $450,000 annually, meaning the city would be responsible for $300,000. He extended that over a number of years to arrive at the $4.5 million figure.
Fisher’s estimate does not include Coralville paying for parking and other infrastructure work it has said it will do.
Coralville City Administrator Kelly Hayworth dismissed Fisher’s tax number as speculative. He said the parking and infrastructure work would benefit the entire district and $9.5 million is what they figured the city’s true costs to be on the Von Maur building. He said the $150,000 property tax cap is based on what Coral Ridge Mall anchor tenants pay.
Johnson County Assessor Bill Greazel, whose jurisdiction includes Coralville, said anchor stores in a mall traditionally get a discount on their assessments because they help attract other stores. But this Von Maur will not be part of a mall and may be more like the Coralville Walmart, which is near other retailers but doesn’t get the big-box discount.
The Von Maur taxes could easily reach $300,000 a year, Greazel said, although he had not done any calculations and ultimately he won’t know how to assess it until it is built. It is to open by July 2013.
Fisher criticized Coralville’s use of tax increment financing, or TIF, to pay for the project.
A TIF effectively freezes the property taxes on a site at predevelopment levels and diverts the new taxes, or increment, into a fund often used to pay for infrastructure costs.
Fisher said people outside Coralville will help pay for the project through the loss of tax revenue for the Iowa City school district and Johnson County.
“I think it illustrates a huge problem with Iowa’s TIF law,” he said. “There’s no justification for a state law that encourages one city to pirate tax base from a neighboring city at the expense of taxpayers.”
Von Maur and Oliver McMillan did not return messages seeking comment.
Iowa City’s Markus said he would never use TIF to go after a neighboring community’s businesses or a project with so little new job creation.
He also said Coralville took a parochial rather than regional approach to economic development that will not serve the area well. He asked why, if Iowa River Landing is such a great project, Coralville had to offer so much and why it couldn’t get an anchor that was not already in the area.
“It’s greed, at the end of the day,” he said. “And I think greed a lot of the time is borne out of desperation.”
Hayworth said each community needs to do what’s best for itself and called it naive to believe it would be easy to attract an anchor tenant to Iowa River Landing.
“If that’s the case, that you can easily get a store like that, then obviously they (Iowa City) can get another store in downtown or the mall,” he said.
Coralville City Council member John Lundell said the investment in Von Maur will benefit the larger Iowa River Landing project, so even if the true value is $16 million, he said it’s worth it.
“It will pay back many fold,” he said.
Lundell also said the down economy has forced cities nationwide to provide incentives to jump-start projects.
Click here to read a story from today about a developer saying the private sector cannot compete with Von Maur-like agreements.
The Von Maur deal has led to increased scrutiny of Coralville’s use of tax increment financing.
Nearly 40 percent of Coralville’s $1.3 billion in taxable property is in TIF districts, compared with 0.89 percent for Iowa City, according to numbers kept by the Johnson County Auditor’s Office.
This summer, Moody’s Investors Service gave Coralville a “negative outlook” on two bond sales, citing the city’s “very high debt burden” and “significant leveraging of the city’s tax base and tax increment financing districts.” A July 19 report said the city’s “overall debt burden is a very high 14.5 percent of full value,” compared with a median of 2.2 percent for cities with the same bond rating.
The Von Maur agreement is likely to be part of a debate about reforming Iowa’s TIF law in the upcoming legislative session, said Rep. Tom Sands, a Republican from Wapello and chairman of the Iowa House Ways and Means Committee.
He drafted legislation on TIF reform last session and wants improved transparency and accountability for TIF projects, possibly setting limits on the amount of TIF property within municipalities, and ensuring that TIF districts phase out when planned rather than being rolled over into new TIF districts.
Sands, a banker, said from the little he knows about the Von Maur agreement, Coralville complied with the letter of the law, but the deal “just doesn’t smell or feel right.”
Hayworth said a lot of people have forgotten that Iowa River Landing is a former rundown industrial site that he said is a perfect candidate for the use of TIF to improve blighted areas.
The city a decade ago connected Iowa River Landing to the Coral Ridge TIF district by using the right of way along Interstate 80, a controversial move that was upheld by the Iowa Supreme Court.
Greazel, the county assessor, noted that the projects in Iowa River Landing are being subsidized by the properties in the Coral Ridge Mall TIF district.
Hayworth said he doesn’t think it’s fair to say the mall’s owner, General Growth Properties, will now essentially be helping to fund possible competition.
Asked if General Growth was upset by the Von Maur deal, he said, “Whether they’re happy or not, it follows what the law is.”
General Growth declined to comment for this story.
The Gazette’s Dave DeWitte contributed to this story. Click here to read the article.